Category Archives: HMRC

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Capital Gains Reminder for Crypto Investors as UK Tax Year Ends

Capital Gains Reminder for Crypto Investors As UK Tax Year Ends

Tax on cryptocurrency earnings has become an important factor at year’s end, which many UK cryptocurrency investors will soon find out as their 31 January deadline approaches.

New regulations created in 2018 means that this month’s tax returns will need a little more care when completed by crypto enthusiasts and exchanges as well, although companies are still awaiting more details.

Published on 19 December, the comprehensive guide detailed the circumstances or instances in which a crypto holder, trader or someone who receives payment in the form of crypto would need to pay taxes. At present, Her Majesty’s Revenue and Customs (HMRC) guidelines refer simply to individuals. Tax guidelines for crypto assets in businesses or utilized by businesses are due to be published at some unspecified point in the future. HMRC also notes that the “tax policy may evolve as the sector develops”.

For investors though, at the end of this month, those who have sold their crypto assets will be liable for paying Capital Gains Tax (CGT) provided that their assets have appreciated and a profit has been recorded. However, there is some good news for many small investors as CGT is exempt below the sum of USD 14,625. HRMC has indicated that the percentage on chargeable assets may be as high as 20%, wholly dependent on the tax rate of the returnee.

In an attempt by HMRC to tighten up on profits incurred through cryptocurrency trading, those filing their returns this month will have to give specific details of some of their transactions including type of cryptocurrency asset, date of the transaction and type, number of units, the value of the transaction and the cumulative total of units. HMRC have said that they will also be requiring bank statements and wallet addresses as part of the 2018 return.

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HMRC Publishes Comprehensive Guide for UK Crypto Tax

HMRC Publishes Comprehensive Guide for UK Crypto Tax

Thorough crypto tax guidelines have been published in the United Kingdom by the nation’s tax agency, Her Majesty’s Revenue and Customs (HMRC).

Published on 19 December, the comprehensive guide details the circumstances or instances in which a crypto holder, trader or someone who receives payment in the form of crypto would need to pay taxes. At present, the HMRC report refers only to individuals. Tax guidelines for crypto assets in businesses or utilized by businesses are due to be published at some point in the future; HMRC also notes that the “tax policy may evolve as the sector develops”.

The framework set out by the HMRC is lengthy with many nuances and sub-sections throughout which provide provisions for hard forks, losses and so on, there are some key takeaways that indicate that the UK is beginning to formally adopt cryptocurrencies into the national economy and pave the way for crypto legitimacy.

The move builds on the work laid out by the UK’s Cryptoasset Taskforce (CATF), an entity comprised of the UK Treasury and the Financial Conduct Authority (FCA), who in a bid to regulate the nascent sector have optimistically endeavored to examine and study cryptocurrencies and blockchain technology.

What is taxable?

The CATF had previously split cryptocurrencies into three camps: security tokens, utility tokens, and exchange tokens. Though these taxation guidelines only apply to exchange tokens, the HMRC writes: “This paper considers the taxation of exchange tokens (like bitcoins) and does not specifically consider utility or security tokens. For utility and security tokens this guidance provides our starting principles but a different tax treatment may need to be adopted.”

In brief, the HMRC outlines that crypto holders need to pay capital gains tax when they have purchased tokens in an attempt to make gains on their investments. Additionally, those who receive payment from their employers in the form of tokens which are classified as “readily convertible assets”, meaning they can easily be exchanged for cash, will be required to pay income tax, though there are nuances on when the employer pays tax on the employee’s behalf, and vice versa.

Pooling

Amongst the numerous recordkeeping requirements where a user is required to detail token type, date received, the number of tokens and so on, the HMRC offers a “pooling” option for crypto tokens which allows for simplified capital gains tax calculations, which removes the need to monitor each individual loss or gain transaction.

HMRC writes: “For example, if a person owns Bitcoin, Ether, and Litecoin they would have three pools and each one would have its own “pooled allowable cost” associated with it. This pooled allowable cost changes as more tokens of that particular type are acquired and disposed of.”

Other activities

Mining and airdrops have also received the tax treatment. For miners, “if the activity does not amount to a trade”, then the awarded amount is taxable as miscellaneous income with reductions available based upon mining expenses. Furthermore, mining fees are also subject to income tax as either “trading or miscellaneous income”, which depends on a few factors with regard to the activity, namely: degree of activity, organization, risk, and commerciality.

For airdrops, “income tax will not always apply” if tokens were received “without doing anything in return” or are “not as part of a trade or business involving cryptoassets or mining”. However, if airdropped tokens were received in return for, “or in expectation of”, a service, then income tax applies.

 

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UK’s HMRC Blockchain PoC Needs Experts, Policy Direction

Head of Platform Architecture at Her Majesty’s Revenue and Customs (HMRC), Richard Mander, has shared details of the department’s blockchain Proof of Concept (PoC). While he cited the potential benefits as being substantial, hiring and maintaining experienced staff has been an issue.

Speaking on the Govtech stage at Blockchain Live 2018 in London Wednesday, Mander discussed exactly what stage HMRC are at with its PoC, adding that finding people with the right knowledge and skill set to do this is becoming an issue. They hope to expand the project to host a second node in the near future but need to increase the expertise of their team first to make this an easier task.

Mander also outlined future policy issues that HMRC needs to consider in regards to the PoC, including to what extent they want to be accountable for maintaining the future structure of international trade.

The PoC

HMRC have been trialing the blockchain project as a way of increasing the efficiency of cross-government data sharing. Currently, the government model for potential traders in the UK requires them to register with multiple offices who carry out a series of arduous checks before they can receive authorization. Despite the checks being the same or very similar in content, the government does not have a secure way of sharing the information with one another, hence all departments are required to wasteful carry out exactly the same checks.

Mander detailed that if the trader also requires a specific license for selling or purchasing their goods, this can include more departments such as that of international trade or agriculture which are required to undergo these checks – a costly and time-consuming operation for all parties.

He told the audience, ”If we maintained a ledger of all those checks, the outcome would be recorded and could be shared securely and instantly, a huge efficiency benefit for HMRC.”

Phase one of the single node PoC has involved building a private, permissioned blockchain that holds full details of all of HMRC’s audit events and trade applications, with a ledger storing the audit events, outcomes and checks. It has also used blockchain permissions to limit user access to appropriate records by government employees.

”It has been a very successful first trial, it’s proof of the potential benefit of the technology within HMRC.”

Moving forward

It has, however, created some policy issues within government, including the problem that the department’s security premises is based on the idea of single entity data guardianship. A shared, multi-node environment means this would need to be fundamentally changed.

As well as this, with the blockchain trial being such a success, the question has been raised as to what extent HMRC want to be responsible for maintaining the structure for international trades should they continue to develop and launch the PoC.

”Should we be having aspirations of owning blockchain architecture? Do we want to be held accountable if the movement at Heathrow comes to a halt if our application fails?” Mander asked, throwing out potential issues that such a direction might envoke.

”We proved potential value, but at a technology level, there are questions we can’t answer without broader engagement with policymakers,” he concluded.

 

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